Don't Cry For Argentina, The World's Worst Sovereign Deadbeat

Last month, a court in Ghana detained the ARA Libertad, an Argentine naval training vessel, until Argentina guarantees repayment for a portion of its defaulted government debt. This minor legal action has now exploded into an international incident. Argentina has accused Ghana of violating international treaties, sought the intervention of the U.N. Security Council, and suggested that the Ghana courts are facilitating “an act of piracy against a sovereign country by greedy “vulture funds.” They have also recently sought action by the International Tribunal for the Law of the Sea.

But Argentina’s bluster obscures the weakness of their legal position. The Ghana court’s well-reasoned and thoughtful decision is completely consistent with international law and should be lauded for forcing Argentina to face accountability for its financial impunity.

Like other sovereign deadbeats, Argentina has used its status as a sovereign to avoid the consequences of its financial actions. Unlike a private corporation, a sovereign government can default on debt it borrowed from private creditors, and then largely ignore demands for repayment by invoking the international legal doctrine of sovereign immunity. This doctrine generally shields the sovereign governments and their property from lawsuits in the courts of other sovereigns.

Of course as the Ghana court correctly held, Argentina has explicitly waived its right to invoke sovereign immunity defenses against claims for repayment on its bonds. Because of its past history of defaults, private creditors had demanded Argentina grant this waiver before they would purchase Argentine bonds. Every court that has reviewed Argentina’s bond contract, including the Ghana court, the U.S. Court of Appeals for the Second Circuit in New York, and the United Kingdom’s Supreme Court, has agreed that Argentina has made an explicit and valid waiver of all of its sovereign immunity defenses for repayment of its bonds.

Now that those investors have won judgments in the U.K. and the U.S. ordering repayment on those bonds, Argentina is claiming that, under international law, its waiver cannot apply to its naval vessels or any of its government property. Putting aside the fact that Argentina has itself ignored such international law when it seized property off a U.S. air force plane last year, Argentina’s legal argument is simply incorrect. While naval vessels do enjoy immunity from seizure under international law, there is nothing that prevents countries from waiving that immunity, as Argentina has clearly done here.

Indeed, British courts have long allowed sovereigns to waive immunity for military vessels and many other countries follow the same approach. The main exception, the United States, does not allow execution of judgments on such vessels for domestic policy reasons, and not because international law prohibits such actions.

This is why Argentina’s public relations campaign to delegitimize the Ghana court by hinting at the influence of “vulture funds” is so outrageous. Rather than condemning the Ghanian court, we should be supporting its sensible application of international law by refusing to allow Argentina to ignore its own legally binding promises. The weakness of Argentina’s legal case is probably why it is frantically applying political and diplomatic pressure to overturn the court’s decision. It has no serious legal argument that could do so.

As nations like Greece and Spain continue to struggle against dangerously high levels of public debt, some have suggested those countries would be better off following the example of Argentina. But while Greece and Spain might benefit from joining the ranks of sovereign deadbeats, the Argentina model of debt, default, and financial impunity deserves condemnation rather than emulation.

Julian Ku is Professor of Law and Faculty Director of International Programs at Maurice A. Deane School of Law Hofstra University.

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